Challenger launches $250m hybrid issue

The “Challenger Capital Notes Offer”, which the company signalled at its recent earnings release, comes a day after Commonwealth Bank of Australia completed a $2.6 billion hybrid capital raising.
Photo: Tamara Voninski

Challenger Financial Services has launched a $250 million hybrid securities offer it says will finance the future growth of its annuities business.

The Challenger Capital Notes Offer, which the company signalled at its recent earnings release, comes a day after
Commonwealth Bank of Australia
completed a $2.6 billion hybrid capital raising.

Challenger appointed UBS Investment Bank as an arranger of the transaction and a joint-lead manager alongside JPMorgan,
National Australia Bank
and
Westpac Banking Corporation
.

The securities are being marketed at a margin of 3.40 to 3.60 percentage points over the bank bill rate, which would give investors an initial yield of about 6 to 6.2 per cent. This compares with a 2.80 percentage point margin paid by Commonwealth Bank in its recent PERLS VIII raising.

The Challenger notes must convert to equity in May 2022, but the company can redeem or exchange them in May 2020.

The securities which will be listed on the ASX contain several terms required by regulators to ensure they absorb capital losses in extreme events. They include a mandatory conversion clause into common equity and a non-viability trigger, which gives the Australian Prudential Regulation Authority the right to convert the securities should it deem the institution to be non-viable.

Following the Challenger transaction, the total raised in the hybrid and listed notes market in 2014 stands at about $6 billion, comprised entirely of financial institutions.